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Wal-Mart , analysts say tighter focus on existing stores paying off

Posted by retailigence on September 10, 2008

Wal-Mart Stores Inc. appears to be reaping the benefits of a decision more than a year ago to slow the pace of new store growth and, more recently, to increase remodeling of existing stores. The company initially said it would remodel about 325 stores this year, then raised the projection to 350. Addressing analysts in June, Eduardo Castro-Wright, president and chief executive officer of the U. S. stores division, said the number of remodeled stores could double to about 700 each of the following two years.

H. Lee Scott, president and chief executive officer, re-emphasized the company’s plans to invest more in remodeling as it continues efforts to improve the shopping experience when he addressed retail analysts Thursday at a conference in New York. Wal-Mart reported that August sales rose by 3 percent in stores open at least a year, or about twice the amount analysts anticipated. Although the company has said in past financial reports that remodeling disrupts shopping and hurts store performance in the short term, John Simley, a Wal-Mart spokesman, said remodeled stores show improved results when the job is done.

“I can’t detail what that would be, but it is a positive effect. That’s why we do it,” he said. The company does not release results for individual stores. Retail analysts and consultants say the remodeled stores have much-improved sight lines — making it easier for shoppers to find what they’re looking for — brighter lighting and betterorganized displays, especially in electronics and apparel. “I see a vast improvement. I think it’s much more navigable to see the back of the store from the front of the store,” said Carol Spieckerman, president of newmarketbuilders, a Bentonvillebased consulting firm. In a video clip posted recently on Wal-Mart’s Web site, Scott addressed the decision early last year to decrease the company’s U. S. store growth. At the time, Wal-Mart was under pressure from retail analysts to stop building stores that drew many of their customers from existing Wal-Mart stores. “We were growing a lot of market share, but at what cost ?” Scott said in the clip.

“I think the decision to pull back on the number of stores, to think about using our capital differently in share repurchase and other things, has really lined up perfectly because in a time where the overall size of the pie in retail is growing so slowly, do you really want to be cannibalizing yourself ?” Scott said the company also has scaled back the size of some new supercenters from the typical 195, 000 square feet to about 175, 000 square feet.

According to company reports, remodeling projects are expected to account for 7. 6 percent of capital expenditures this year, up from 5. 7 percent last year and 5. 4 percent two years ago. That’s still far short of newstore construction, expected to take 35. 4 percent of the capital budget this year. But the trend is clearly downward for new stores, which made up 48. 1 percent of the capital budget last year and 51 percent two years ago.

Wal-Mart revised its current year capital spending forecast in June to a range of $ 13 billion to $ 14 billion, down from its earlier forecast of $ 13. 5 billion to $ 15. 2 billion. Patricia Edwards, a Seattlebased retail analyst, said she visited several remodeled Wal-Marts on a recent trip through Washington, Idaho and Montana. “The looks were very tailored, on the outside, to the community,” she said. Inside, she said, she found several changes that made the stores more appealing and easier to shop. Putting the fresh foods up front on the grocery side lent a farmers market-type appeal, she said.

In the electronics department, Edwards said, small items such as cameras and iPods were easy to find, and the apparel department had better delineation of categories. “Overall, I think they’ve got a good look going,” she said. Spieckerman also found apparel, one of her small firm’s specialties, much improved. “The presentations, particularly in active wear, have gotten much cleaner,” she said. Camille Schuster, a California retail consultant and marketing professor, said she found wider aisles and brighter lights at a Phoenix store she recently visited. And better signs made it easier to figure out where she wanted to go. But as she looked for individual items, she said, she still found a lot of products “kind of crowded together.” “That’s always one of my impressions of a Wal-Mart store. The stuff looks messy on the shelf,” she said.

Simley said stores typically are remodeled every five to seven years, so as more new stores are added each year, the number of remodelings also increases. He said other changes the company has adopted over the past two years also are important to improving the feel of the stores, such as the dress code that calls for blue polo shirts and khaki pants, more emphasis on quality merchandise and a product mix that is relevant to local communities. “Our survey scores in that area are as high as they’ve ever been, that the shopping experience has vastly improved,” he said.


Contributed by:- Vipin Rawat


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